Golden Opportunities: 3 Ways to Play Surging Gold Prices

With Russian forces bearing down on Ukraine’s largest cities, gold prices are bearing down on $2,000 an ounce for the first time since they breached the milestone in August 2020.

The impact of the Russia-Ukraine war has been widely felt across the capital markets including many commodities. Mounting sanctions imposed on the aggressor have investors debating the potential impact on global inflation and economic growth. 

With gold perceived as an inflation hedge, many traders have rushed into gold and gold-linked ETFs in recent days. This along with supply disruptions has spurred a 7% rally in the price of gold since January 30th. 

Retail investors have several options when it comes to rising gold. While donning a hard hat and picket in hopes of a repeat of the 1848 California Gold Rush is one option, a more lucrative (and less tiring) alternative is to invest in companies that will benefit from near-record gold prices. Let these three gold stocks do the dirty work.

What is the Best Gold Mining Stock? 

Newmont Corp. (NYSE: NEM) celebrated its 100-year anniversary last year. Based in Colorado, it is the largest gold mining company on the planet with operations in North America, South America, Africa, and Australia. Nearly 90% of Newmont’s revenues are derived from gold, with the remainder from copper. 

The recent stock market volatility and geopolitical instability plays right into the hands of a miner like Newmont. A flight to safe haven assets such as we are witnessing now ultimately leads to higher realized selling prices and profits. We saw this in 2020 when Newmont’s earnings more than doubled as gold surged to all-time highs.

Newmont’s EPS growth was a more modest 12% last year as gold prices stabilized when demand-supply dynamics normalized. Heading into 2022, the miner has the wind at its back with gold prices trending higher and the war in Ukraine likely to support demand for gold. 

Where the Russia-Ukraine conflict goes from here remains to be seen, but the heightened global economic uncertainty should keep gold prices elevated for some time. With a 3.3% dividend yield, investors may want to dig their heels into Newmont as a long-term buy and hold. 

Is Barrick Gold a Shareholder Friendly Company?

Barrick Gold Corporation (NYSE: GOLD) is a Canadian gold producer that has traded on the New York Stock Exchange since 1985. The former $50 stock has sprung to life in recent days alongside the climb in gold prices and a solid fourth quarter earnings report.

A 9% jump in revenue reflected the upward trajectory of gold and improved production during the recently completed quarter. For the full year, Barrick netted $2.1 billion in profits on nearly $12 billion in revenue. The results solidified the company’s status as one of the lowest cost producers in the gold mining industry. 

For this year management is projecting production of 4.2 million to 4.6 million ounces, which at the midpoint is on par with its 2021 production. Production costs are expected to trend higher due to wage and other inflationary pressures but could be more than offset by higher average selling prices if gold remains on its current path. 

Supported by a healthy balance, Barrick Gold’s dividend structure makes it stand out among its peers. On top of a $0.10 per share regular quarterly dividend, the company recently announced a performance-based dividend tied to the net cash position on its books. This stands to bring an extra $0.10 to $0.25 per share to investors’ accounts each quarter. 

What Makes Franco-Nevada Stock Different?

Franco-Nevada Corp. (NYSE: FNV) is a Canadian gold company of a different sort. It makes money through a series of agreements including royalties, net profits interests, and other revenue streams tied to the production of gold and other resources. As such, it represents a ‘back-door’ approach to gold investing in that shareholders have indirect exposure to a diversified mix of global gold production.

As a royalty and streaming company, Franco-Nevada doesn’t own or operate any gold mines nor is it involved in exploration and development. Instead, it generates cash flow through its portfolio of 50-plus assets tied to various gold miners’ production and financial results. It has additional interests in silver, platinum, oil, and gas. 

Franco-Nevada, therefore, has limited exposure to cost inflation, no heavy capex budget, and high margins. To some investors, this makes it a preferred way to gain exposure to gold. The diversification outside of gold is also seen as attractive to those who would rather not place all their eggs in one golden basket.

On March 9th, Franco-Nevada will look to exceed consensus earnings estimates for the 12th straight time when it reports its fourth quarter performance. With the stock still recovering from its recent dip and gold prices on the rise, a pre-earnings buy may be a golden opportunity.